Blog - Eurozone slowdown raises fears there will be no economic rebound

Economic growth slowed to an 18-month low in the eurozone in May raising fears there will be no rebound from the weak first quarter.

Surging business activity last year has given way to more modest rates of growth in 2018, though the expansion is seen as steady rather than weak.

IHS Markit’s purchasing managers’ index (PMI), an influential survey of companies across the Continent, slowed to 54.1, down from 55.1 in April.

This is the lowest score since late 2016 and indicates a reduced pace of growth – any score of above 50 shows an expansion taking place.

The manufacturing and services sectors both slowed, with the dip led by the biggest economies, Germany and France.

“While the surveys from February through to April had seen widespread cases of business activity being disturbed by temporary factors such as bad weather, strikes, illness and the timing of Easter, the May survey saw frequent reports of business being disrupted by a higher than usual number of public holidays, which workers often bridged on to weekends,” said IHS Markit.

Businesses also reported shortages of raw materials and workers.

Economists said there are few signs of any pickup in growth in the months ahead either.

“The declines in the forward-looking components were somewhat worrying and, on the basis of past form, the headline output index is consistent with quarterly GDP growth remaining at about the first quarter’s 0.4pc into the second quarter,” said Jessica Hinds at Capital Economics.

That represents a more sustained slowdown from 0.7pc in the final quarter of 2017.

Underwhelming demand is another problem which indicates the boom-era may be over.

“Input cost inflation accelerated to a three-month high on the back of higher fuel and energy prices, while in some countries wage pressures are starting to show. But this is squeezing margins rather than increasing inflation as average selling prices for goods and services rose at the slowest rate since September 2017. Companies have mentioned difficulties in hiking prices because of weak final demand,” said economist Peter Vanden Houte at ING.

Growth across the world’s developed economies has slowed this year.

Figures from the Organisation for Economic Co-operation and Development (OECD) show quarterly growth across its members fell from a peak of 0.8pc in the second quarter of 2017 to 0.5pc in the first three months of 2018.

Most members for which the OECD has data recorded a slowdown in the first quarter, though a group including Norway, Finland, Mexico and South Korea did accelerate, while Spain and Italy were among those with unchanged rates of growth.